Japan Lower House Passes Sales Tax Law – Win for Noda Risks Party Majority

Japanese Prime Minister Yoshihiko Noda’s biggest step yet toward winning a sales tax increase aimed at reining in the nation’s public debt came at the cost of alienating one-fifth of his party’s lower house lawmakers.

While the chamber yesterday approved legislation to double the 5 percent levy by October 2015, 57 lawmakers in the ruling Democratic Party of Japan voted no, and former DPJ leader Ichiro Ozawa signaled he may leave. If he takes more than 50 followers with him, it could endanger the party’s majority.

Noda, who called the rebellion “unfortunate,” now must hold together a deal with the opposition Liberal Democratic Party to win passage for the bill in the upper house. With the Diet session extended until Sept. 8, weeks of wrangling may be in store for a country that has seen six leaders since 2006.

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Noda officially gives in on tax, welfare reform

Prime Minister Yoshihiko Noda and Democratic Party of Japan executives officially endorsed changes to the government’s social security and tax reform bills Wednesday, while signalling the Diet session will be extended, possibly to early September.

Noda was forced to postpone a vote on the revised bills in the Lower House beyond Thursday’s scheduled end of the Diet session, given the fierce opposition from DPJ members against the planned consumption tax hike.

The prime minister had been keen on having the contentious tax hike bill approved before Thursday, but with that bill and other key legislation still hanging fire, the DPJ proposed extending the session to Sept. 8 in a meeting with opposition parties, which didn’t give an immediate answer, party sources said.

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Japan Reaches Tax Deal That Could Help Shrink Debt

In a deal that could lead to Japan’s first substantial steps toward reducing its burgeoning debt burden, Prime Minister Yoshihiko Noda agreed with the country’s two largest opposition parties Friday on legislation to double the country’s consumption tax.

Mr. Noda has staked the fate of his administration on the bill, which would double Japan’s five-percent sales tax by 2015, hinting that he could call a general election if the plan fails to pass parliament before the current session ends next week.

During weeks of negotiations, Mr. Noda argued that Japan must raise taxes to shore up its social welfare and pension systems, which have come under growing strain as the country’s population ages. Japan’s public debt has already grown to over twice the size of its gross domestic product as social welfare spending grows and tax revenues dwindle in a deflationary economy.

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Chief Cabinet Secretary Sengoku – Japan Near ‘Edge of a Cliff’ – Taxes may be raising in Japan

Japan’s top government spokesman said the country’s fiscal situation is “approaching the edge of a cliff,” underscoring Prime Minister Naoto Kan’s call for a national debate on raising the 5 percent sales tax.

Kan is “expressing his deep sense of crisis and resolution about the sustainability of social security as the aging population increases under a low birth rate,” Chief Cabinet Secretary Yoshito Sengoku told reporters today in Tokyo. “The supporting fiscal conditions don’t allow for any delays, it’s finally approaching the edge of a cliff.”

The prime minister last night said in an interview with TV Asahi that he would “stake my political life” on addressing Japan’s rising social welfare costs and increasing public debt. The day before he said “now is the time” to face these problems.

Japan’s public debt is set to exceed twice the size of the economy this year and reach 210 percent of gross domestic product in 2012, both estimates the highest among countries tracked by the Organization for Economic Cooperation and Development, according to the group’s forecasts.

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